The unresolved trade war continues to dominate headlines and direct trade even as both the U.S. and China have shown signs they wish to de-escalate tensions.
Overview
Early yesterday, President Trump announced a delay in tariffs that would have a negative impact on consumers during the Christmas season. The President’s opponents were quick to point out that he had claimed that China pays for the tariffs, not Americans. Politics aside, stocks rallied with the DOW industrial average gaining nearly 400 points. China also said that they still plan to send a delegation for face-to-face talks in September.
The risk rally appears to be short-lived as U.S. equity futures show that yesterday’s gains will likely be wiped out on the open. The dollar has been mostly neutral as risk sentiment has shifted widely but we have seen more volatility against the Japanese yen and Swiss Franc.
Financial media this morning is covered in stories of doom and gloom for the global economy. Axios reporter and friend of Monex Dion Rabouin points out that the bond market is pricing in the negative impacts of the trade war and are triggering the recession alarm bells. “This morning, the 2-year and the 10-year yield curve inverted, the recession indicator watched most closely by banks.”
This morning’s domestic economic docket remains light so we will continue to monitor new trade news and developments abroad.
What to Watch Today…
- No major events scheduled for today.
Complete Economic Calendar can be found here.
EUR
The Euro slipped a bit but remains in a relatively tight range. Euro area GDP slowed to only 0.2% growth. A breakdown by country shows even more warning signs. German domestic product fell by 0.1%, which was in line with expectations, but reminds investors that Europe’s largest economy may be heading for a recession. A separate report showed that Eurozone industrial production fell the most in three years.
AUD
The Australian dollar, often a proxy for China, slumped half of a percent as Chinese industrial production failed to impress. Industrial production gained only 4.8% in July year over year, failing to meet the expectation of a 6.0% gain. The reading is the weakest output growth since 2002. The slow Chinese data has added to the risk-off sentiment today.
